Land Values - 6

The Art of the Price

Farmers will pay more for an all-farmland tract; hunters will pay more for an all-recreational land tract. The right combination can maximize prices. (Photo courtesy of Ducks Unlimited)

BIRMINGHAM, Ala. (DTN) -- In Kentucky, most agricultural properties are diverse by nature of land and soil types. The 326 acres Jason Blue sold at auction last year were no different.

Located in Webster County, the property included tillable crop acres, pasture, woods and CRP ground. It sold in eight tracts, and though it wasn't the highest-end cropland in the county, it brought a strong price of $4,121 per acre, or a total of just over $1.3 million. That is above the $3,850 average for the area.

"We got the top end of the range on this. There was a lot of good stewardship, and there was a lot of buyer interest. We had people as far away as Nashville and Indiana come look at that farm," recalled Blue, with Kurtz Auction and Realty Co., in Owensboro, Kentucky.

He added that the land was sold in an absolute auction, which he believes generates more interest than a reserve auction. The other factor that helped build interest was putting land into the correct tracts, Blue noted.

"There is an art to dividing a property to maximize value," he explained. "Say you have a nice homestead with a lake, woods and 10 acres. Take that off the farmland so you make another completely tillable tract. Consider a hunting or timber tract. A farmer will pay more for purely tillable farmland, and a hunter will pay more for woods. The key is presenting the property in a way that maximizes the whole."

Even in an area with such diverse land use, Blue said people ask him every day how much low corn prices have affected the land market. He believes marginal ground has been hurt the most.

"The very upper-end farm ground is not bringing the crazy high prices it was, either. But, good farmland is still within 5% and 10% of the top of the market, which, for us, was between 2012 and 2014."

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There is a softening in land prices, Blue believed, because of a decline in farming net income. But, farmers are still buying.

"One of the farmers I work with told me after he bought land at an auction that the way he sees it, corn prices go up and down all the time. And, he's not locking in a grain price for 20 years. But, when he buys a piece of land, he is locking in an interest rate. I believe interest rates are your No. 1 influencer on the price of farm ground over and above where grain prices are."

Blue concluded he doesn't know if this is the new normal but says farmers are still actively looking for land.

"Yes, they are choosier, and they are staying closer to home. But, there are enough of them in the market that they are keeping prices strong."

PAY TO PLAY

Recreational land has traditionally been one of the first things to take a hit when times get tough for the land market. Mossy Oak Properties' Dillon Jones admitted sales have been challenging, but he's sensing an upturn.

Duck-hunting ground and duck impoundments are big draws for land buyers in Hyde County, North Carolina. Jones, based out of Nags Head, said he's seeing more interest for that type of land.

A recent sale of 287 acres proves a good anecdote for improvement. The land was a nice mix, including 165 acres of farmland. The rest was in woodlands and pines. It listed for $1.2 million and sold at $1.1 million. That equals about $3,832 per acre, close to the $3,970 average for cropland in the state.

"The main focus of that farm was waterfowl and hunting. There were several duck impoundments on the property, which is what the buyer was looking for. They also wanted rental farmland. The property was coming out of CRP in 2018, which I think was another positive."

Jones said this same property had been listed two years ago, when the market was not as strong. It didn't sell, didn't even bring one buyer to the table. This time, three buyers all came to the table at once.

"This year, we have absolutely had a larger number of buyers interested in recreational purchases, but inventory has been low. I think right now, we have a good balance, but it's cyclical."

He added that land financing can be challenging, with most bankers wanting 30% to 35% down for this type property.

"People don't have to have recreational or investment land. It's not like a home; they don't have to have it. That makes for a more challenging market. As long as there is money freed up through a stable economy, though, I feel good about 2018," Jones said. "A 3% to 5% increase would not surprise me for this land market."

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